2 Supply Chain Performance

Achieving Strategic Fit and Scope

PowerPoint presentation
to accompany
Chopra and Meindl
Supply Chain Management, 6e
Learning Objectives
1. Explain why achieving strategic fit is critical to a
company’s overall success.
2. Describe how a company achieves strategic fit
between its supply chain strategy and its
competitive strategy.
3. Discuss the importance of expanding the scope of
strategic fit across the supply chain.
4. Describe the major challenges that must be
overcome to manage a supply chain successfully.
 What is Strategic Management?

The set of decisions and actions that result

in the formulation and implementation of
plans designed to achieve a company’s
objectives.
Product development
Product development strategy specifies the
portfolio of new products that the company will
try to develop
Marketing and Sales Strategy
Marketing and sales strategy specifies how the
market will be segmented and product positioned,
priced, and promoted
 What is Supply Chain?

• Large-scale, future-oriented plan for interacting with

the competitive environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
• Large-scale, future-oriented plan for interacting with
the competitive environment to achieve objectives
• Company’s “game plan”
• Framework for managerial decisions
The Value Chain

FIGURE 2-1
 Achieving Strategic Fit

• Strategic fit – competitive and supply chain

strategies have aligned goals
• A company may fail because of a lack of strategic fit
or because its processes and resources do not
provide the capabilities to execute the desired
strategy
 How to achieved Strategic Fit?

• Coordinated with overall strategy = GOAL

• Company structure in execution of strategy
• Design of supply chain and the role of each stage
aligned to support strategic supply
Resource Capabilities:
How is Strategic Fit Achieved?
1. Understanding the customer and
supply chain uncertainty
2. Understanding the supply chain
capabilities
3. Achieving strategic fit
Step 1: Understanding the
Customer and Supply Chain
Uncertainty
• Quantity of product needed in each lot
• Response time customers will tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the
product
 Step 1: Understand the Customer
- Implied Demand Uncertainty-

Customer demand attributes

• Lot size
• Response time
• Service level Implied
• Product variety Demand
• Price Uncertainty
• Innovation

Implied demand uncertainty is the uncertainty that exists due to

the portion of demand that the supply chain is required to meet.
9/9/2019 Supply Chain Framework 19
Implied Uncertainty and Other
Attributes
1. Products with uncertain demand are often less mature
and have less direct competition. As a result, margins tend
to be high.
2. Forecasting is more accurate when demand has less
uncertainty.
3. Increased implied demand uncertainty leads to increased
difficulty in matching supply with demand. For a given
product, this dynamic can lead to either a stockout or an
oversupply situation.
4. Markdowns are high for products with greater implied
demand uncertainty because oversupply often results.
 Key Point

The first step in achieving strategic fit

between competitive and supply chain
strategies is to understand customers and
supply chain uncertainty. Uncertainty from
the customer and the supply chain can be
combined and mapped on the implied
uncertainty spectrum.
 Step 2: Understanding Supply
Chain Capabilities
• Responsiveness comes at a cost
• Supply chain efficiency is the inverse to the cost of
making and delivering the product to the
customer
• The cost-responsiveness efficient frontier curve
shows the lowest possible cost for a given level of
responsiveness

9/9/2019 Supply Chain Framework 22

Step 2: Understanding Supply
Chain Capabilities
• Responsiveness comes at a cost
• Supply chain efficiency is the inverse
to the cost of making and delivering
the product to the customer
• The cost-responsiveness efficient
frontier curve shows the lowest
possible cost for a given level of
responsiveness
Step 3: Achieving Strategic Fit
• Ensure that the degree of supply chain
responsiveness is consistent with the
implied uncertainty
• Assign roles to different stages of the
supply chain that ensure the
appropriate level of responsiveness
• Ensure that all functions maintain
consistent strategies that support the
competitive strategy
 Efficient and Responsive
Supply Chains
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Product design Maximize performance at a minimum Create modularity to allow postponement of

strategy product cost product differentiation
Lower margins because price is a prime Higher margins because price is not a prime
Pricing strategy
customer driver customer driver
Manufacturing Maintain capacity flexibility to buffer
Lower costs through high utilization
strategy against demand/supply uncertainty
Maintain buffer inventory to deal with
Inventory strategy Minimize inventory to lower cost
demand/supply uncertainty
Reduce aggressively, even if the costs are
Lead-time strategy Reduce, but not at the expense of costs
significant
Select based on speed, flexibility, reliability,
Supplier strategy
9/9/2019 Select based on costSupply
and quality
Chain Framework 25
and quality
 Key Point

The final step in achieving strategic fit is to

match supply chain responsiveness with
the implied uncertainty from demand and
supply. The supply chain design and all
functional strategies within the firm must
also support the supply chain’s level of
responsiveness.
 Challenges
• Increasing product variety and shrinking life cycles
• Globalization and increasing uncertainty
• Fragmentation of supply chain ownership
• Changing technology and business environment
• The environment and sustainability

9/9/2019 Supply Chain Framework 27

 Changes Over Product Life Cycle

• Beginning stages
1. Demand is very uncertain, and supply may be
unpredictable
2. Margins are often high, and time is crucial to gaining
sales
3. Product availability is crucial to capturing the market
4. Cost is often a secondary consideration
 Other Issues Affecting Strategic Fit

• Multiple products and customer segments

– Set up independent SC for each different product or
customer
– Tailor the SC to best meet the needs of each product’s
demand

• Product life cycle

– Use responsive SC in the early stage
– Use efficient SC when market is matured

9/9/2019 Supply Chain Framework 29

 Changes Over Product Life Cycle

• Later stages
1. Demand has become more certain,
and supply is predictable
2. Margins are lower as a result of an
increase in competitive pressure
3. Price becomes a significant factor
in customer choice
 Key Point

When supplying multiple customer

segments with a wide variety of products
through several channels, a firm must
tailor its supply chain to achieve strategic
fit.
 Summary of Learning Objectives
1. Explain why achieving strategic fit is critical to a
company’s overall success
2. Describe how a company achieves strategic fit
between its supply chain strategy and its
competitive strategy
3. Discuss the importance of expanding the scope of
strategic fit across the supply chain
4. Describe the major challenges that must be
overcome to manage a supply chain successfully